Merchant to Pay FTC $250,000 Over Missing Affiliate Disclosures

On Saturday my Google Alerts notified me of an article at lexology.com which talked about a merchant agreeing to settle with the Federal Trade Commission (FTC), having “signed a consent agreement and agreed to pay $250,000 for deceptively representing that endorsements … that were posted on blogs or other websites created by Legacy’s affiliates.”

A company selling a popular series of guitar-lesson DVDs will pay $250,000 to settle Federal Trade Commission charges that it deceptively advertised its products through online affiliate marketers who falsely posed as ordinary consumers or independent reviewers.

…The Learn and Master Guitar program promoted by Legacy Learning and Smith is sold as a way to learn the guitar at home using DVDs and written materials. According to the FTC’s complaint, Legacy Learning advertised using an online affiliate program, through which it recruited “Review Ad” affiliates to promote its courses through endorsements in articles, blog posts, and other online editorial material, with the endorsements appearing close to hyperlinks to Legacy’s website. Affiliates received in exchange for substantial commissions on the sale of each product resulting from referrals. According to the FTC, such endorsements generated more than $5 million in sales of Legacy’s courses.

The FTC charged that Legacy Learning and Smith disseminated deceptive advertisements by representing that online endorsements written by affiliates reflected the views of ordinary consumers or “independent” reviewers, without clearly disclosing that the affiliates were paid for every sale they generated.

So we’re talking about the Federal Trade Commission’s endorsements/testimonials rules which came into force on December 1, 2009. In essence, these FTC’s rules say that when there is a sponsor-endorser relationship (merchant-affiliate relationships included) between an advertiser and a marketer who publishes a testimonial about the advertiser’s product/service, such a relationship must be clearly disclosed on the marketer’s website. Additionally, the advertiser is responsible for educating and equipping the marketer to comply with these rules, as well as for policing and enforcing such compliance.

The above isn’t the first instance of the FTC bringing action over “deceptive advertisements”. In September of 2010 I blogged about a settlement with Reverb Communications over a very similar issue, with the only difference that there we no affiliates involved (reviews and testimonials were posted by company’s employees instead).

Affiliates, merchants and affiliate program managers must understand that the FTC is very serious about those mandatory disclosures. If you aren’t yet compliant, you want to take care of this a.s.a.p.!

Another interesting aspect of the case is that the FTC went after the merchant and not its affiliates, as many of them are overseas. Can’t blame them. Easier, quicker, and deep pockets are always more appealing.

As for “pro-active mis-representation”: who was it that lied about the affiliate relationships? The merchant, or their affiliates?

From everything I’ve read it did seem that the disclosures (or lack thereof) were the main concern. I’ve also heard from non-review type affiliates who are active with this program that they were asked to add disclosure verbiage to their sites as well.

The FTC charged that Legacy Learning and Smith disseminated deceptive advertisements by representing that online endorsements written by affiliates reflected the views of ordinary consumers or “independent” reviewers, without clearly disclosing that the affiliates were paid for every sale they generated.

How did they represent? This suggests an act. That’s my point. Not only did they not disclose but the make an action that told the world “online endorsements written by affiliates reflected the views of ordinary consumers or ‘independent’ reviewers”

That’s my point. Not sure if you got into that at all — or have access to those details. But this seems flagrant in that regard. Because there are many, many, many programs that have affiliates that are not disclosing. But fewer who are doing this.

My thought is perhaps they had set up their own affiliate sites (that they owned) and “represented” (did not disclose but also made effort to suggest these were real independent opinions.

While I don’t normally agree with Government interfering with free enterprise I have to agree that fake endorsements are dirty pool. However, because the payoffs are so large and prosecutions so rare. I fear this will become the norm. Is this so different from what we live with every day? How many celebrities have their face associated with a product they would never dream of using. With blogs and social networks influencing the all mighty search engine rankings these sorts of things will continue until the next trend moves the scrupulous as well as the darker side of Internet marketing to change and adapt. Not everyone will play nice if it makes money some will choose to exploit any system. Makes it hard for the honest guy but, not everyone in business has good ethics or we would not need the watchdogs we have.